Share issue from 17 years ago haunts HDB Fin IPO

The stock market regulator is examining a potential violation of the Companies Act by HDB Financial Services 17 years ago as the non-bank lender prepares for a $1.5 billion initial public offering (IPO), three people aware of the matter said.

- Gopika Gopakumar & Anirudh Laskar

The Securities and Exchange Board of India (Sebi) found that the lender in 2008 issued shares to more than 50 employees of its parent HDFC Bank through a private placement, one of the three people said.

The regulator now plans to refer the matter to the Union ministry of corporate affairs (MCA), since this may constitute a violation of the Companies Act, the person said on the condition of anonymity.

Under the Companies Act, issuing shares to more than 50 people is considered a public issue, requiring compulsory Sebi clearance. A preferential issue such as the one made by HDB is a private placement, and such an issue cannot be made to more than 50 investors without Sebi approval.

The threshold of 50 was added to the Companies Act in 2000.